Is Employee Contribution to PF Taxable Under the New Tax Regime in FY26?

The Employees’ Provident Fund (EPF) has long been one of the most popular and trusted retirement savings schemes in India, offering both security and tax advantages.

Traditionally, contributions to EPF, both from the employee and the employer, were eligible for various tax exemptions and deductions under the old tax regime, making it a favoured tool for salaried individuals aiming to build a tax-efficient retirement corpus.

However, with the introduction of the new tax regime under Section 115BAC of the Income Tax Act, many of these benefits have been either limited or removed altogether.

Let’s take a look at how the employee contribution to EPF is treated under the new tax regime in FY26.

EPF Under the New vs Old Tax Regime: A Quick Overview

Employee Contributions: No Tax Deduction Under the New Regime

Under the new tax regime, employees cannot claim a deduction under Section 80C for their contributions to the EPF. This is a significant shift from the old regime, where this was one of the main ways salaried employees reduced their taxable income.

• If you contribute ₹1.5 lakh or more annually to EPF, it no longer helps reduce your tax liability under the new regime.

• This means you pay income tax on your full salary (after standard deductions), regardless of how much you contribute toward your provident fund.

Interest Earned on EPF: Limits Apply

As per the 2021 amendment:

• If your own contribution to EPF in a financial year exceeds ₹2.5 lakh, the interest earned on the excess amount is taxable.

• This rule is applicable in both the old and new tax regimes.

• The interest on excess contribution is treated as “Income from Other Sources” and taxed as per your slab rate.

Should You Choose the New Tax Regime?

The new tax regime offers lower tax rates but removes most exemptions and deductions, including those under Section 80C. Here’s what you should consider before switching:

You might prefer the new regime if:

• You don’t make significant tax-saving investments (e.g., EPF, ELSS, insurance).

• You want simplified tax filing.

• Your total exemptions/deductions are less than ₹2.5–₹3 lakh annually.

You might prefer the old regime if:

• You contribute significantly to EPF and claim full 80C benefits.

• You pay for insurance, tuition fees, or home loan principal.

• You also claim HRA, home loan interest, and other deductions.

Read More: Is Provident Fund (PF) Taxable Under the New Income Tax Regime for FY26?

Conclusion

The employee contribution to EPF is not taxable per se under the new tax regime, but it also doesn’t help reduce your tax burden through deductions anymore. While the core benefit of building a retirement corpus remains, the tax-saving edge is lost unless you opt for the old tax regime.

When filing your income tax returns, it’s crucial to evaluate both regimes side by side and determine which one aligns better with your financial goals, income structure, and saving habits.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.